Five Tips for Outsourcing or Sharing IT Resources

Pennsylvania and Minneapolis are among successful shared services and outsourcing models.

Sharing or outsourcing IT resources can be a tough job -- no matter how sensible or cost-effective the concepts may seem. These tasks often involve reorganizing staff members or perhaps eliminating some altogether; phasing out and developing new work processes, which everyone must adjust to; figuring out how shared operations and resources will be managed; and last, but certainly not least, discerning how much of a role private contractors will play in day-to-day operations. And of course, all this comes after you do a comprehensive assessment of your organization's current processes.

But with the nation mired in a recession, some governments are taking another look at shared services and outsourcing arrangements, despite the potential organizational hurdles. Officials in states like Pennsylvania, which has outsourced state government IT infrastructure since the late 1990s, say these strategies can cut operational costs and free up funds for public-policy priorities.

"You don't want to be spending millions of dollars on running payroll when you really need to be educating kids and helping people get jobs," said Naomi Wyatt, Pennsylvania's senior deputy chief of staff and former secretary of administration. "That's really the underlying impetus for all of this, which is getting things in a more cost-effective and efficient place so you can spend your money on the things the government should be spending money on."

For governments mulling about adopting shared or managed services, there's no better place to look for insight about potential challenges and rewards than from government IT executives who've already walked down that road. Those with firsthand experience shared their steps to success with Government Technology.

1. Assess the Need

Governments should take a good look at their current situation before deciding what to share or outsource, Wyatt said. Though it happened before her tenure, Pennsylvania likely did that examination before officials decided in 1999 to consolidate and share the state's IT resources. Since then, Pennsylvania has saved about $317 million as a result. A shared data center was outsourced to Unisys during the consolidation, and the state's Shared Services Initiative ultimately centralized governance, procurement and management of IT hosting services.

"One of the biggest challenges in jumping into shared services is understanding the scope of what you want to share. Sometimes that's really hard because everything's spread out," Wyatt said. "It's in different places and under different people's authority, and spending time to really understand what it is you want to pull together -- the volume of it, the scope, the complexity -- is really, really important."

Pennsylvania is just one of many large governments that have grappled with what to share and outsource. Lynn Willenbring, CIO of Minneapolis, renegotiated the city's existing outsourcing contract with Unisys to manage municipal IT infrastructure during the first six months of her appointment. The city has saved more than $18 million and has also expanded service delivery to citizens since its public-private partnership with Unisys began in 2003, according to the vendor.

Based on that experience, Willenbring advises organizations to first examine their internal infrastructure. If it's insufficient, then look for alternative structuring and management options.

"Do you think you're doing it really well in-house today? Do you think you have industry best practices across all aspects of your IT organization? If you can't answer 'absolutely yes,' then you need to consider [management alternatives]." One option a CIO might choose is seeking outside help.

An IT leader should also ponder the agency's work force and staffing levels. Is the organization having trouble gaining or retaining qualified personnel because of a bad location or inadequate salaries? If so, maybe qualified workers only can be provided by a corporate partner. "Some organizations have a real challenge getting the talent that

they need to do the jobs they need to do," said Willenbring. "The technology's the easy part. The people are the difficult part."

On the shared services side, a government should look at its business processes before deciding to consolidate, according to David Wilson, director of Accenture's Health and Public Service Finance and Administration industry group.

"If you have a small organization -- let's say it's a small city or county, and it might have lots of departments -- if its transaction volume is quite low, it probably isn't going to get the benefits of moving to a shared services operating model. Typically the benefits come from high volume where you can leverage efficiencies and economies of scale," Wilson said. However, if an organization handles many back-office processes, perhaps sharing is more sensible.

Deciding to scrutinize the potential need for shared services is one thing, but it's another challenge altogether to carve out time and attention to do so. Sometimes technologists are busy managing the same systems and tasks that they'd like to streamline. Willenbring remembers Minneapolis had some serious issues before consolidating and outsourcing.

"We were so focused on the break-fix -- keeping the servers up, dealing with the desk-side support. We just weren't able to help the city move forward from a technology perspective because 80 percent of our time was consumed with keeping the existing environment operational," she said. "We didn't have 24/7 support for anything -- no service desk, no data center support. Essentially we were just drowning."

2. Measure Total Cost of Ownership

While considering how well an IT organization handles technology functions in-house, measure the total cost of ownership for operating hardware, software and services. These costs sometimes aren't closely tracked by government agencies, but they're critical to identifying what advantages would come from an outsourced solution.

"Most institutions really don't understand the cost of their technology and the cost of many services that they provide," said Bob Hanson, CIO of Sarasota County, Fla. and Sarasota County School District. This lack of clarity might also apply to overall personnel costs. "They don't understand what the hourly cost of an employee is when you add labor, overhead, benefits, office space and all the array of things," he said.

If a government knows what it's spending on people and technology, it will see what it can gain from outsourcing or sharing. "Otherwise, you're never really going to get a valid comparison, and you're either going to be subject to being gamed by someone or an opinion winning out over fact," Hanson said.

Sarasota has a communitywide fiber network that's shared by the county, the school district and the cities of Sarasota and North Port. All users share the costs of operating the infrastructure. Sarasota County also designed a Web-based application for public agencies called GovMax that integrates strategic and business planning, performance management and budgeting functions. Agencies use GovMax to get a firmer grip on the efficiency and performance of in-house processes and their results.

3. Carefully Craft the Contract

In most cases, the relationship between a service provider and the service user comes down to a service-level agreement (SLA). It's an all-important document that formally defines the service and how it will be delivered. If SLAs are not carefully crafted, problems could trip up an organization.

Minneapolis hit an SLA-related snag with Unisys after agreeing to the initial contract in 2002. As Willenbring saw it, the agreement didn't adequately define some service-desk protocols. The wording specified that the average answering time would be less than 45 seconds for service desk personnel, but that specification didn't guarantee timeliness. If numerous callers waited for several minutes but others waited only seconds, that could satisfy the 45-second average even though many people waited too long for assistance.

When the city's existing contract with Unisys came up for renewal in 2007, a new SLA was drafted with better specifications for answering help-desk calls. Now 95 percent of calls must be answered within 60 seconds.

An SLA should include statements detailing what technical and performance characteristics will meet an agency's requirements, and a quality assurance plan for meeting them. A good SLA establishes metrics to measure performance. But be careful when hammering out the technological specifications -- avoid confusing those who'll read the contract.

It may help to bring in a contract expert from outside the IT department. Have that person examine the contract for potential ambiguities in diction.

Accenture's Wilson thinks the language in agreements shouldn't be too dense. "One problem we see a lot is that the service-level agreements are too complex to be understood or too voluminous to be really used on a day-to-day basis as a management tool," he said. "One key parameter for service-level agreements is that they need to be written clearly in plain language so that they're easy to understand and use."

4. Get Everyone Onboard

When governments decide to outsource or share resources, it can be tough to get departments to go along. "What I've found to be most helpful is to first understand what the real issue is," Willenbring said. The issue isn't always the technology. It's sometimes about ego. "It's about control. It's about ensuring that the people working on things know what needs to be a priority," she said.

Pennsylvania's Wyatt encourages departments to be open about their needs and participate in the governance process.

"If you have your customers all getting together, talking to each other and willing to help each other out when they're in need -- I think that goes a long way to customers feeling like they've got some skin in the game, and they're not just getting billed for a service," Wyatt said. "If you dictate it, you just show up and tell people what the services are going to be -- and if you don't let them participate -- they get disillusioned, angry and don't participate. You end up having a lot more problems."

But sometimes, participation creates problems too. Collaborators may disagree on who controls the sharing process or how it should function. Wilson offers an example: "The friction comes not in that they're going to have to work together once shared services are rolled out. Quite frankly, once a shared service center takes over the accounts-payable business process, it doesn't mean that the Department of Transportation and the Department of Human Services have to be interacting with each other in a new way," he said. "They need to be interacting with the shared service center in a new way."

According to Wilson, one way to get parties onboard is to identify crucial business processes and then include everyone in working through the process so an agreement can be reached. He said Accenture handles these situations by involving different user groups in the decision-making when hashing out the parameters of businesses functions. If everyone's on the same page, there's little room for confusion.

"When we help a government client implement shared services, the first thing we do is benchmark to determine where the inefficient business processes are that would be good candidates to put into a shared services operating model," he said. "What happens in these shared services projects is, once a business process is defined as a candidate to go in shared services, we pull in all of the agencies or departments that are going to be the new customers for this shared services organization, and we jointly design how the new business process is going to be done."

5. Win Approval From the Top

In some cases, a CIO's or vendor's

influence may not be enough to mediate a conflict or spur everyone's agreement on outsourcing or sharing. A governor, mayor, agency director or other powerful public official may have to step in as the ultimate peacemaker.

"You need somebody from the top saying, 'This is how we're going to do it,' because otherwise you have people slipping off the farm right and left," said Pennsylvania's Wyatt.

But convincing a governor or mayor to green-light these projects can be an uphill battle. Aaron Erickson, the program manager of Ohio Shared Services, knows this well. He is one of the people who spearheaded the project's ambitious consolidation of many financial processes under the management of a central organization within the state's Office of Budget and Management. The Ohio Shared Services center executes financial processes for customers across state government, and there are plans to implement an enterprise resource planning system based on Oracle's PeopleSoft for customers. Erickson has spent years working to secure funding from the government and winning crucial support.

"It takes a lot of time, and you have to be committed to putting the time in. It started with one-on-one lunches, coffee with every CFO who would meet with me -- and from there, starting to talk to outside advisers," Erickson said. "Once I had enough people saying, 'I think this is a good idea. We should pursue it,' then we started the conversations about funding."

After funding is secured, public-sector IT leaders, including Erickson, have found that shared and managed services usually pay off in the end -- and in time, many citizens see the benefits too.

"It's how collaboration makes everything better for everybody," Sarasota's Hanson said. "It's better for the institutions at large. It's better for your career. The opportunities are greater. The service levels are greater. Your reputation is stronger."